(4.viii.19) Suppose two men, each of 1000 l. a year, the one rent, the other salary; the latterworth 15 years' purchase. Suppose that to make a provision for his children, the man with thesalary saves one-half; the man with the rent spends all. With respect to expenditure, the manwith the salary stands to the other in the relative condition of a man of half the income.
(4.viii.20) Next let us examine how it is with the children. The annual sum of 500 l. savedfor 15 years, at compound interest, would amount, say, to 10,000 l. This at 5 per cent. interest, wouldafford a perpetual in. come to the children of the man with the salary of 500 l. a year. Thechildren of the man with the rent would have 1000 l. In this way, as the father's condition wasthat of a man with half the income, so is that of the children.
(4.viii.21) It is perfectly plain, therefore, that if the one is taxed at more than one half therate of the other, he is taxed too high. The salary we supposed to be worth 15 years' purchase: the rent isworth 30: one half is here also the proportion. It therefore points out the rule. If one income isworth half as many years' purchase as another, it ought to be half as much taxed; if it is worthone-third of as many years' purchase, it ought to be taxed one-third, and so on.
(4.viii.22) It may be said, that if the class who live upon salaries are loaded with more thantheir due share of the burthen, the balance will adjust itself; because, the situation having beenrendered less desirable, fewer people will go into it, and the salaries will rise. This does notremove the objection. For, first of all, why should legislation disturb the natural proportion, inorder that the force of things may restore it? In the next place, the restoration of the equilibriumin this case is a slow operation. It requires a generation to pass away before the diminution of thenumbers of those who live upon salaries can raise their condition. A whole generation istherefore sacrificed.
Section IX. Taxes on Commodities; Either Some ParticularCommodities; Or All Commodities Equally (4.ix.1) Taxes on commodities may either affect some particular kinds, or all commoditiesequally.
(4.ix.2) When a tax is laid on any particular commodity, not on others, the commodity risesin price, or exchangeable value; and the dealer or producer is reimbursed for what he has advancedon account of the tax. If he were not reimbursed, he would not remain upon a level with others,and would discontinue his trade. As the tax is, in this case, added to the price of the goods, itfalls wholly upon the consumers.
(4.ix.3) When a tax, in proportion to their value, is laid upon all commodities, there is thisdifference, that no one commodity rises in exchangeable value, or, as compared with another. Ifone yard of broad cloth was equal in value to four yards of linen, and if a duty of ten percent. onthe value. were laid upon each, a yard of cloth would still be equal to four yards of linen.
(4.ix.4) An ad valorem duty upon all commodities would have the effect of raising prices, ortheir value in relation to money.
(4.ix.5) The members of the community would come to market, each with the same quantityof money as before. One-tenth of it, however, as it came into the hands of the producers, would betransferred to the government. But it would again be immediately laid out in purchases, either bythe government itself, or by those to whom the government might dispose of it. This portion,therefore, would come into the hands of the producers oftener by once, after the tax wasimposed, than before. Before the tax was imposed, it came once into the hands of the producers,from those of the purchasers of goods. After the tax was imposed, it would come into the handsof the producers in the same manner: but it would go from them to the government, and from thegovernment come back into the hands of' the producers a second time.
(4.ix.6) The producers, in this manner, would receive for their goods, not only the wholeten-tenths of the money of the country, as before; but they would receive one-tenth twice, wherethey received it only once before. This is the same thing exactly as if they had received eleven-tenths,or as if the money of the country had been increased one-tenth. The purchasing power of themoney, therefore, is diminished one-tenth; in other words, the price of commodities has risenone-tenth.
(4.ix.7) Upon whom the tax would, in that case, fall, is abundantly obvious. The purchaserswould come with the same quantity of money as before. The purchasing power of that money,however, would be reduced one-tenth, and they would be able to command one-tenth less ofcommodities than before. The tax would, of course, fall upon purchasers.
(4.ix.8) As this argument has not produced, in some minds whose decisions I highly respect,the same conviction which it has in my own, I will endeavour to render it still more perspicuous, byrecurrence to one of the simplest possible cases.
(4.ix.9) Let us suppose a community of 10 persons, with only two species of commodities,bread, and meat. Let us suppose that 5 of those persons have 5 loaves to dispose of, and that the other 5have 5 pounds of meat, the value of a loaf the same as that of a pound of meat. Let us supposethat the exchange takes place, as in a more complicated state of things, by the intervention ofmoney; and, as the simplest possible case, let us suppose that the whole of the goods isexchanged against the whole of the money; in other words that one exchange of the whole of thegoods is performed by one operation of the money. If each loaf is worth 10 pence, and eachpound of meat the same, it is necessary, under this supposition, that the 5 persons having the 5loaves of bread should have 50 pence, I and the persons having the 5 pounds of meat shouldhave 50 pence.
